Anyone who believes Fannie Mae and Freddie Mac caused the housing bubble, or just contributed to it, you're going to love this: The conservator overseeing the mortgage giants is blocking Fannie and Freddie from participating in a possible solution to the housing crisis.
Just about everyone these days has a plan to help housing. And just about every plan, from President Obama's to Glenn Hubbard's involves some level of mass refinancing, mortgage modifications and/or principal write-downs for struggling homeowners.
"There's a huge amount of pushback on write-downs from lenders themselves; there's really no plan that makes sense of that," says Stan Humphries, chief economist at Zillow. "There's a lot of issues with moral hazard" with mortgage modifications.
But Humphries does support Hubbard's plan -- co-authored with fellow Columbia Business School Professor Chris Mayer -- which calls for Fannie Mae and Freddie Mac to refinance all mortgages at today's low rates. (See: Refi Madness: Use Fannie and Freddie to Solve the Housing Crisis, Hubbard Says)
Given that U.S. taxpayers are already providing a backstop for Fannie and Freddie, via the government's "blank check" support through 2012, Hubbard and Mayer argue the plan wouldn't cost the government anything additional but would provide needed relief for homeowners and stimulus for our flagging economy.
A Congressional Budget Office analysis suggest the plan would prevent over 110,000 foreclosures and provide homeowners with as much as $70 billion of additional spending power, Humphries notes.
"In general, the idea of being more liberal about refinancing for mortgages backed by Fannie and Freddie is a good idea," he says. "If it can help anyone...we should do that."
From an accounting perspective, Humphries says the plan compares favorably to the first-time homebuyer tax credit of 2010, which cost the taxpayer about $30 billion. "This idea [of mass refis] is a much better idea because it's much more revenue neutral and it's actually going to help people."
The sticking point here, as noted above, is opposition from Fannie and Freddie's conservator, the Federal Housing Finance Agency.
FHFA acting director Edward DeMarco "is really focused on being a true conservator to Fannie and Freddie and making sure taxpayers don't lose more money on those enterprises," Humphries says. "He's concerned about expanding these refinance programs in such a way that Fannie and Freddie would lose more money than they would otherwise anyway. "
Recently, DeMarco has responded to criticism from Larry Summers and others that he is taking an overly narrow view of the FHFA's role, declaring on C-SPAN: "FHFA has been aggressively trying to assist the housing market to ensure that the country continues to have a liquid and stable and functioning secondary mortgage market. Some of those things that are being advocated for us to do really go beyond what Congress has given us the authority to do and the funds that have been provided."
DeMarco may have a point because many homeowners would be unable to make payments even with a refi or modification because of unemployment and declining home values makes it uneconomical. Even if Fannie and Freddie were to provide them refinancings, a large numbers of homeowners would still end up defaulting anyway. Should that occur, Fannie and Freddie might need additional government support beyond the $141 billion in taxpayer funds already received since 2008.
Still, many observers believe DeMacro is too worried about his own career as a government bureaucrat vs. trying to help U.S. homeowners, who are already paying for the bailouts of Fannie and Freddie but have little to show for it.
- Fannie Mae
- Stan Humphries